A Prior Student's Advice on The Test

1. Double-booking accounting (CR vs. DR in the T accounts) (I am hoping that this terminology is still being used).

2. Prudent Accounting principle, e.g. if given a choice between a transaction making a profit or just break even, post break-even, or e.g. if you can depreciate in 5 years or in 3 years, assume 3 years due to say, technological obsolescence.

3. Accounting Standards (not sure if this is part of the syllabus, but in the real world is important). IFRS or US GAAP or other? It basically mean that you have to follow the same rules to similar problems, e.g. don't recognise revenue when the merchandise leaves the warehouse, if the rule for revenue recognition says that it can only be recognised when it is receptioned at the customer's warehouse with a Proof of Delivery.

4. The Going Concern concept. This is more theoretical, but basically says that you must assume the company will continue in business for the foreseeable future. This is important if you have, for example long-term debt that you have to service over more than an accounting cycle, or if you have assets that depreciate over a long period of time, i.e. buildings over 30 years, or ships over 20 years, etc.

5. Accruals. Very important in the real world (again, not sure if part of LSE syllabus). This is linked to principle 2 above, and it basically means that if you think something is going to cost you money, even if you haven't incurred the cost, nor received the invoice, then book an accrual for an estimation of that cost "as if you would have incurred it already". Silly example (again, probably repeating what you are already know): there are rumours in the market that the price of, I don't know, platinum, is going to go up, and you are a trader in exhaust filters for the automotive industry (where platinum is a key element). Instead of waiting to get the nice letter from, I don't know, Buffalo Gold Ltd, or First Nickel Inc., you decide to book an accrual for 20% of the value of the future purchases of the new exhaust filters to accomodate the potential increase in price and a potential loss of rebate for volume purchases, because you don't expect to sell as many if prices go up. If later on, the real invoice from the supplier is lower than your accrual, you "reverse" the accrual back into the P&L as a profit.

6. Materiality. This is to do with the fact that if you spend $10,000 in a fancy meeting in Las Vegas, you have to book it under the rubric "entertainment and hospitality" or whichever the name is, and not as "marketing", even if effectively it builds up ties between suppliers and customers (before they get too drunk to remember you). So all "marketing" costs are really marketing, and not full of "extras" incurred by the VP's wife on a shopping spree.

7. Financial statements. P&L, Balance Sheet and Cash Flow statement. This is very important and you mustn't mix them up, e.g. your bank loan sits in the asset part of the Balance Sheet, but the interest expense to service the loan sits in the P&L, etc.

Well, that's mostly all I can remember. I can't recommend some concepts and not others, as you need them all to do well in most cases. Of course, I haven't got the foggiest idea what the syllabus is all about, so I hope that this was of any help at all.